Kansas City, Mo. ? A federal judge ruled Tuesday that Aquila Inc. cannot spend the proceeds from the recent sale of its Canadian assets.

The ruling, issued by U.S. District Judge Gary Fenner, prevents Aquila from spending $504 million of the money it earned from the May sale of assets to Fortis Inc.

Insurance company Chubb Corp., which issued bonds in 1999 and 2000 to insure natural gas delivery contracts purchased from Aquila by municipal utilities in Nebraska, claims the money must be held as collateral on those bonds.

In his ruling, Fenner found that the bond contracts — currently worth $504 million — allow Chubb to demand collateral or be discharged for the liability of the gas contracts.

Because the gas is being delivered as ordered, Aquila argued, there is no reason for Chubb to insist on collateral.

Aquila has $400 million in debt repayments due this year, payments that chief financial officer Rick Dobson testified the utility would be able to make.

But he also testified Tuesday that if the judge continued to prevent Aquila from accessing the money into December and January, it could prevent the company from supplying natural gas to its utility customers, particularly if gas prices are volatile.

Fenner will consider at a later hearing whether to make the temporary injunction he ordered permanent.

No date was set for that hearing.